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What is Equity – Real Estate Treasure Hunt – Residual Income


Equity equity equity! That’s what we’re
going to be talking about today. What is it? how do you use it? how do you leverage it?
understanding it in in real estate is, is probably one of the most important
fundamental concepts of knowing how to become a multi-millionaire. Kris Krohn
with limitless TV and that’s where we’re headed today. So this is one of the most elemental
concepts in all of real estate. You need to understand what equity is and today
in talking about the three types of equity, let’s just start with this very
basic definition of what is it. So here’s the example, if I show you a house right
here and let’s say that this house has a value right here of $100,000 but what I
owe is $50,000 then the question is how much equity do I have? If it’s worth a
hundred thousand and it’s half paid off with a fifty thousand dollar balance
left, then the equity right here is $50,000. So fifty thousand dollars of
equity. Man I could use that to go buy another house. I could sell this and buy
two more houses. And remember in real estate from the investor’s point of view,
we look at real estate and equity more equity usually equals a higher cash flow.
A higher cash flow equals a more residual income. The more equity you have,
the more homes that you can buy. So equity is something that I really
like a lot. So let me show you now the three different types of equity that
exist. All right? The first type of equity is called, sweat equity. So here’s the
deal on sweat equity, Sweat equity says here’s this house, and this house right
now it has a value of $100,000 and I was able to purchase this price, purchased
this house for 80,000. So when I say that I owe 80,000 left on it but this house
is a special kind of house because it’s a fixer-upper I bought it in really
horrible condition and it’s worth a hundred thousand in horrible condition.
However, I bought it knowing that if I were to put some money into it and put
some sweat equity in and fix it up that that new value could change to a hundred
and twenty thousand dollars. Okay you’ve heard of
people doing this before you watch those TV fix and flip shows right? This is
essentially the concept is people are making a play at sweat equity. There’s
the possibility of more equity but I’ve got a sweat which means I gotta work the
tools and I gotta drop in some carpet and some pain and fix holes in the walls
and do and solve problems. If I solve problems, I can walk into equity. Me as
the investor says, all right cool. I can buy it for 80,000. It might only be worth
a hundred thousand today but if I put in five or ten thousand dollars worth of
work I’m gonna get an immediate awesome ROI on that. I’m gonna make, I’m gonna get
that value up tohundred and twenty thousand and in this case I would have
how much equity? Eighty thousand is what’s owed, one hundred and twenty
thousand is now and it’s worth. There’s a 40,000 dollar equity gap and again why
do I like that? More equity means that I got more of the house paid off which
means more cash flow. More cash flow equals more residual income this is muy
bueno good stuff. All right so that’s the first one. Now the second
one that you’re probably more familiar with is what I call patient equity. And
what this means is, hey I’m not an investor, I’m not trying to get a deal,
Kris I understand that that’s your frame of reference but I’m just a, I’m
just a typical buyer that wants a home for my family. And when I went out in the
market, I found a home that was worth a hundred thousand dollars and I put just
a basic downpayment on it. You know if it was a first-time homeowners purchase I
put three or five percent down. I’m essentially probably gonna owe around
$95,000. And right now, there’s like really no equity in this home. However,
what does real estate do with time? It goes up in value and it does so looking a
little bit more like this but if you take all the bumps and bubbles and
all that out, it’s constantly going up in value. So patient equity says, if I just
wait five years my house at a 5 percent growth rate if that’s what’s
happening in my market, that might compound and perhaps in five years my
home is worth 120 thousand dollars. Thank you inflation. I can sell that later and
actually get $20,000 out of it. This is not, I want to be really clear
this is in fact a horrible investor strategy.
Don’t play the market with no equity because if you get in a pinch, if you get
in a bind if the cash flow is not there, if there’s a vacancy, you can’t really
sell this and do well with it. You’re forced to stay there for a period of
time. But appreciation or patient equity it is something very real. Now what I’m
gonna do in this next segment is I’m gonna share with you my favorite kind of
equity is what I call, Pirate Equity. Pirates. What do Pirates do? Well it’s not
the best connotation right? They plunder but one of the things that they do is
they’re always hunting down buried treasure. This is something I like to do.
There’s a small percentage of the population at any given time that is
selling a house and they’re selling it below market for some type of reason. And
I believe I can find homes that don’t require a whole lot of sweat equity.
Meaning for every home you find that’s a great deal because it’s a fixer-upper,
I’m gonna find a deal that is not a fixer-upper. And on this situation, the
fare of the day might be having a house that’s valued at $100,000 that I can
purchase for sixty five thousand dollars just by, just by treasure hunting. These
deals do not come around very often but the deal of the decade comes
along about once a week. And what that really means is, there’s houses out there
in the marketplace and you look at today’s market and there’s a lot of
people saying, oh you can’t get a good deal in the marketplace and I just smile.
Because if enough of the people believe that there’s not a good deal out there
guess what? I just, I’m doing a commercial deal right now with seven hundred and fifty
thousand dollars of equity. It was there, it was available. It was just miss
listed and the owners very successful and they don’t care to sell it at its
market value they just want to dump it and they want to be done with it. Alright?
These deals they’re out there they can be fine and so, be a pirate. Go treasure
hunting. You can watch some of my other videos where I’m going to tell you how
to hunt down deals with a lot of equity. And you know what? You could even click
the link below and then have my team who goes around to the best markets in the
country, and we’re constantly digging up buried treasure and then teeing them up
to you and making them available for you. And so
those are three different types of equity ,that’s what equity is. You got
your sweat equity, which means put in some labor and increase the value.
Patient equity, appreciation happens with time. Pirate equity, just go find a house
with a lot of pirate booty right now. Thank you for watching today’s video. I
hope that equity is way clearer for you now and we also threw in some extra
tidbits on what kind of equities are out there and what you can build to make
sure that you create financial success for your future.

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